Today I have a guest post from Ivy Steele. Ivy is in my free Facebook group and after mentioning she’d been a landlord for several years, I asked her if she’d like to share her experience with us on the blog.
I am definitely looking into investing in real estate someday so if you are interested in launching your own landlord business in the future too, this is going to be a treat!
Finding a sustainable way to make extra money is often on most people’s minds. I know that there are many people interested in working for themselves, but just don’t know how or where to start.
One avenue of entrepreneurship that I know firsthand and would like to share is owning rental properties. The country is still recovering from the mortgage industry collapsing in 2007 when many people lost their homes and only the banks were bailed out.
With this unfortunate occurrence, the landlord business boomed due to lenders tightening the requirements to purchase a home. Those who lost their homes took a hard hit to their credit and needed to rent while rebuilding.
Is Being a Landlord Really All It’s Cracked Up To Be?
Not everyone would agree that becoming a landlord is really worth it. When I speak to friends and colleagues of mine, 99% of them feel that being a landlord is too “expensive”, too time-consuming and frustrating or on the opposite end of the spectrum, is not a job.
I also know some former landlords who say that they got out of it because they were spending more than they were making due to tenants that did not pay rent and/or damaged their property, spending too much repairing the home to make it rentable, or that they were too “tired” to keep doing it.
These are real issues that can occur as a landlord, but if you do your due diligence much of this can be avoided.
Real estate is usually a solid investment, but you must know your budget, intent, and target audience.
Check Your Finances First
Before you consider getting started, you must know where you stand financially. Are you looking to pay cash or finance an investment property? Yes. Some lenders do lend money for investment properties, but the terms and rates differ from loans for primary residences.
Once you have your cash available or pre-approval for a loan, you’re ready to start your search. While you can and should start your search anytime, early spring is when I find that the newest listings are posted. I noticed that many bank foreclosures are grouped together, highlighted and listed on the MLS in March.
What To Consider When Searching For a Property
Foreclosures are always my favorites, but there is a catch to some and that is that buyers who are seeking the home as a primary residence get first dibs. So read the fine print. Oftentimes you can find some in pretty good shape or still occupied.
Conventional wisdom says to have your properties close by. But that is not how things turned out for me. For several reasons. One being that I wanted to own rental property in affordable areas and pay a fortune for the property.
The taxes where I reside are also a killer and are a consideration when I am searching for income property. In my case my deals were spread out and not close to home, but worth the drive.
Get a home inspection, be prepared to put in money, time and sweat. The more you can do yourself the more money you can save. I personally have financed all but two of my rental properties. The mortgage is low and I am able to charge a rent that is at least twice the cost of what I have to pay out monthly.
When I hear that being a landlord is expensive I suppose this perspective is as valid as any and could be correct if the property owner was not careful. But there are a lot of factors that can make being a landlord profitable or just a headache.
Type of Unit/Property
After deciding how to fund your dream of becoming a landlord the next step is to choose what type of property you are seeking, a multiunit home or building, single family home etc. After years of land lording single family and multi-unit properties, I must say that if I could go back and do it again I would have chosen all multiple unit homes/buildings.
You get one tax and insurance bill for multiple units, maintenance and repairs are in one location.
Location. Location. Location.
The where is probably the greatest deciding factor of all in my opinion. If you find a great home, but it is in an undesirable area, you may find yourself going months without a tenant, being a victim of vandals, or settling for just enough rent to break even. The difference in a desirable area and a not so desirable one may a whole zip code or just a matter of a few streets.
So, it is important to see your potential investment in person and get to know the area. Investing time, research, or even paying a little more upfront is well worth it in this case.
Is Being a Landlord A Business?
It sure is. You put in hours every month doing things like:
- Keeping accurate records of money collected and money going out
- Saving receipts
- Doing inspections
- Hiring assistance if necessary
- Doing routine maintenance and as needed repairs to keep your investment in good condition
- Placing ads for new tenants
- Doing tours and taking applications when the time comes
This type of work requires organization and an entrepreneurial mindset.
Selecting good tenants is crucial to the success of your business Make sure that your rental application has important questions such the contact information for their current landlord, employment, and banking information.
Charge an application fee to help weed out prospective tenants who are not serious and save yourself some time.
Seek assistance of an attorney with writing a solid lease that covers everything. Have the tenant review and initial each and every page to ensure they are acknowledging the terms.
Also be sure to get every little detail in writing. I never discuss repairs, damage or money owed over the phone with a tenant. I email and text to ensure that I have clear and accurate records with time stamps just in case we end up in court and landlords sometimes do.
It’s not for the faint of heart, but it can be rewarding. My tenants are happy, I send them thank-you cards with gift cards once a year and because I chose my properties wisely if I ever decide to quit my “job” I can sell the property for more than I paid for it. It’s a win-win.
Have you ever thought about becoming a landlord? Why or why not?
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